Fitch says Czech banking sector remains sound, keeps stable outlook.

By bne IntelliNews December 21, 2012
Rating agency Fitch has kept stable the outlook on the Czech banking system reflecting the sectors strong asset quality, funding and performance but future performance will be constrained by weak loan growth. In a new report on CEE banks, Fitch said despite large dividend pay-outs, the capital adequacy ratio of the Czech banking sector improved to 16.4% at end-Q3 2012 from 15.3% at end-2011 providing a comfortable buffer against significant stresses. The sectors liquidity is ample with the loans-to-deposits ratio at a healthy 76% at end-Q3. Czech banks boosted their combined profit by an annual 23% thanks partly to lower provision costs. The major drag on future performance will be weakening loan growth, which will continue to be curbed by the governments austerity measures and weak economy, Fitch said. The rating agency expects Czech economy to contract by 0.9% in 2012 and expand by 1% in 2013. Fitch said the overall outlook for banks in central and eastern Europe is stable but remains bleak against the backdrop of the eurozone crisis, resulting in weaker GDP and deteriorating asset quality. Credit expansion in the region will stay weak due to sluggish demand and limited attractive lending opportunities as a result of the slow recovery in the eurozone. Most CEE banks will worsen their asset quality due to rising impairment charges, Fitch said.
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